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How Do I Apply For Armed Forces Tax Benefits?

Military tax breaks

Military service can earn military members certain armed forces tax benefits. Many know about the Combat Zone Tax Exclusion offered on federal income tax for those with qualifying military service.

But did you know there are other federal tax breaks including tax-free death benefits and options for military spouses who are business owners? These are just some of the options open to you in a given tax year.

What follows is not tax advice. It also does not necessarily apply at the state level–this article is for federal taxes only. It is information sourced from the Internal Revenue Service and is offered as information only. If you need assistance claiming or understanding any military tax benefits, talk to an IRS representative or a tax professional.

What applies in one tax year does not necessarily apply in successive tax years. If you see a tax break or deduction you wish to claim for a previous tax year, it may be necessary to apply for that deduction by filing an amended tax return. Such options are not always permitted depending on tax law in the year you filed and any successive rule changes that may apply.

How Do I Apply For Armed Forces Tax Benefits?

There is no application process to take advantage of your armed forces tax benefits, you claim them as deductions on your federal income tax forms. These tax breaks are not automatic. If you do not claim the deductions on your federal income taxes you will not receive the tax break. It makes sense to get help from a tax professional when claiming these benefits for this reason–you never know what you might overlook when filling out the forms.

Federal Armed Forces Tax Benefits

Combat Zone Tax Exclusions

Those who wish to apply for Combat Zone Tax Exclusions should check the IRS official site to determine what the current list for those approved exclusions includes. The list is always subject to change, but in general, those who serve in a combat zone, draw hazardous duty pay, or meet other requirements may be permitted to exclude some or all combat pay from federal taxes.

IRS.gov states, “If you are an enlisted member, warrant officer, or commissioned warrant officer, none of your combat zone pay is included in your income for tax purposes.”

Combat Zone Tax Extensions

In 2021, IRS rules were modified to allow those serving in qualifying operations outside a combat zone or who are part of contingency operations to get extensions to file taxes or pay them. The qualifying combat zones and other areas are designated by the Secretary of Defense. While you will need to check the tax rules for the year you are filing in, these benefits tend to persist as long as combat and contingency operations are ongoing.

Death Benefits

Federal tax does not apply to the death gratuity paid to the surviving family members of a service member. This is true for “deaths occurring after 9/10/2001” according to IRS.gov.

Sale of a Principal Residence

A taxpayer on what the IRS describes as “qualified official extended duty in the U.S. Armed Services or the Foreign Service” is permitted to suspend the 5-year test period for home ownership and use “for up to 10 years during any period the Service member or spouse serves on qualified official extended duty as a member of the Armed Forces”.

Who qualifies? Service members who are on qualified official extended duty for more than 90 days or, “for an indefinite period” and are assigned to a duty station at least 50 miles from their main home. It may also apply in such cases when the taxpayer is residing in government quarters under government orders.

Deduction for Overnight Travel Expenses of National Guard and Reserve Members

Reservists with duty requiring them to stay 100 miles away from home while in service, “may deduct unreimbursed travel expenses as an above-the-line deduction” according to IRS.gov for the 2021 tax year. This is a good example of an important benefit that should be used year over year, but you’ll need to check the current year’s tax laws to see what the requirements are to claim this deduction. In 2021, it was limited to “the rates for such expenses authorized for federal employees, including per diem in lieu of subsistence.”

Department of Defense (DoD) Homeowners Assistance Program (HAP)

If you received HAP payments (offered to offset negative effects on home values in areas affected by military base realignment and closures (BRAC), ) these may be deductible “as a fringe benefit”.

Military Spouse Business Owners

The IRS directs military spouses who are also business owners to review their options under the rules in the IRS Small Business and Self-employed Tax Center. Military small business owners, as well as non-military entrepreneurs, have some important considerations for COVID-19 relief as well as for family leave wages in the current tax season, and likely will for some time to come. The IRS page for small businesses and self-employed tax filers includes information on how to run a business, how to prepare taxes, and links to the IRS Virtual Small Business Tax Workshop.

Other Military Federal Tax Benefits You Should Know About

In previous tax years, the following benefits have been excluded from federal taxation either in whole or in part. To claim any deduction in the current tax year you should consult the IRS taxpayer guide for military members in the tax year you are filing in to see what is possible.

  • Burial services
  • Travel expenses of dependents to the burial site
  • “Certain educational expenses” for dependents
  • BAH (Basic Allowance for Housing)
  • BAS (Basic Allowance for Subsistence)
  • Government-paid housing and cost-of-living allowances abroad
  • OHA (Overseas Housing Allowance)
  • Moving allowances
  • Dislocation Allowances
  • Temporary lodging and temporary lodging expenses
  • Travel allowances
  • Transportation for you or your dependents during ship overhaul or inactivation
  • Per diem